WARNING: New 1099 Rules

On April 30, 2018, the California Supreme Court issued new 1099 rules as determined in Dynamex Operations West, Inc. v. Superior Court. The ruling affects the classification between an independent contractor and an employee. As a result of this case, more California independent contractors may be characterized as employees, a classification which comes with a higher pay and legal protection.

Federal requirements previously included a 20-question test to establish employee status. Now the proper standard for determining whether a worker is an independent contractor or an employee for wage and hour purposes is the “ABC” test.

1. the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
2. the worker performs work that is outside the usual course of the hiring entity’s business; and
3. the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Under this “ABC test,” a worker is considered an employee unless the employer demonstrates that all three of the factors are established. The court’s ruling applies to worker claims under the state’s Wage Order. It will impact all instances where an independent contractor alleges wage and hour violations such as failure to pay minimum wage or overtime or to provide meal or rest periods.

This ruling will make it much more difficult for California employers to classify workers as independent contractors. California employers and those with employees in California should conduct a thorough reevaluation of their independent contractor classifications to ensure they meet the stringent new “ABC” test.

For further information regarding the new 1099 rules and HR compliance, feel free to contact Flores Financial Services’ Human Resources Department at 619-588-2411.